Missing the point on education elitism

Changes to higher education have caused uproar across the country, but have we been too hasty in the response to change? No matter how you twist it, we are still a long way from the inequality of the US system.

“This will take us to a two-tier American-style university system, where the best courses and the best universities are completely unaffordable to ordinary people.” -- Tanya Plibersek.

The response to the Abbott government’s higher education reforms has been brutal, with backlash in the press and high-profile protests at universities around the country.

Beyond the question of whether the changes are warranted is the simmering concern that the nation is tilting towards the US higher education system and a fear this inevitably leads to a more elitist regime.

There is no doubt the almost equally revered and despised US system has some of the world’s pre-eminent institutions. The famous Ivy League grouping is but one example, symbolising the successes and failures of the American system.

The eight prominent colleges, initially grouped together for the purpose of sporting competition, have come to represent the global standard of academic excellence. They also stand as some of the world’s most prominent debt inducers and icons of elitism.

Indeed, what is perhaps most staggering in America is how many of the world's most influential people of the last two decades have come from just six colleges.

Including only former students of Stanford, Harvard, Princeton, New York University, the University of Pennsylvania and Yale (four of which are Ivy League schools), you cover the last three US presidents (and probably the next), the last four Federal Reserve chiefs, arguably the two biggest names on Wall Street (Jamie Dimon and Lloyd Blankfein) as well as founders of Microsoft, Facebook, Twitter, Google, PayPal, Tesla, Amazon, Yahoo!, LinkedIn and Netflix, not to mention global top 20 rich-listers Warren Buffett, Michael Bloomberg and Carl Icahn.

If you think where you go in the US doesn’t matter, then re-read that paragraph above one more time. Consider, also, that the US has 3000 universities offering the standard four-year degree, making such a small elite core a worrisome trend.

Australia’s 43 universities, meanwhile, are undoubtedly edging closer to the American model, with deregulation of prices, increased private investment, changes to interest repayments and a shift in the make-up of courses. But two facts about the comparison between US colleges and Australian universities have been overlooked in the simplistic focus on a likely rise in fees:

1)Repayment structure. US college students have to start paying back their loans six months after graduating, largely regardless of circumstances, while Australians pay their loans back on a rising scale above a certain wage.

In the US it is a case of ‘pay when we want you to pay’, whereas Australia’s system, even after the controversial changes, is ‘pay when we feel you can afford it’. This ensures the best courses and the best universities remain in reach for all Australian students.

The interest rate policy is also different, even after factoring in the Abbott government proposals. While both nations will soon be tied to the government bond rate (if local reforms clear), the US has an upper cap of 8 per cent while Australia’s will be a more generous 6 per cent.

Crucially, Australia’s rate is variable, while America’s is fixed. That leaves Americans who started college just prior to the GFC anchored with an interest rate of 6.8 per cent per annum for the life of their loan, while new undergraduates stump up a comparatively low 3.86 per cent for the duration of their loan.

It’s a bitter pill to swallow because the rate of interest fell as the economy tanked, but those arguably most impacted -- new graduates -- are left holding an interest deal from a boom-time era.

2)Entrance hurdles. In Australia, enrollment is typically strictly on performance at high school (occasionally it also includes entrance exams). In America, other factors come into play, including extra-curricular activities and signs of leadership.

The wealthy have more resources available to better prepare for intangibles beyond just raw grades (and according to most, the odd hefty donation is looked upon favourably to boot). And while Australia’s universities accept all local students that meet the TER requirements of any given course, most of the elite US colleges have acceptance rates below 10 per cent. (Harvard’s is under 6 per cent.)

Little wonder then that people in the States are frustrated with a system that produces many elite colleges while also serving to entrench the wealth gap.

Indeed, for all the US system’s strengths in developing some of the world’s most innovative thinkers and great ideas, its weaknesses threaten to create an entire generation of disillusioned minds.

Australia may have made steps towards the US college system, but it remains far enough removed that the elitism accompanying America’s structure is not present.

In truth, an elitist education system already permeates through the country -- but not at the tertiary level. Instead, it’s in the public versus private high-school battle, which has been largely forgotten through all the higher education bluster.

The crucial question we must ask is: does it really matter what the prices are for the most prized university courses if students from low-income families have already been so greatly disadvantaged that their chances of getting into elite courses have been significantly reduced?

It should also be noted that if the deregulated system works as it should, then the playing field could actually be levelled further. By pushing market forces on university costs, we can rid ourselves of the current nonsensical pricing structure that, for example, allows a law course at the University of Melbourne to be just $1400 more expensive per annum compared to a science course at a university outside the Group of 8.

If changes to the pricing scheme aren’t made and more students from affluent backgrounds continue to claim the lion’s share of the most highly sought-after positions (such as a spot in law at the University of Melbourne), then we are only serving to further embed the wealth gap.

The furious debate will rage on. While the Abbott government reforms may be chopping funding rather hastily and can be accused of trying to do too much too soon, they are not moulding an elitist higher education system like that seen in the US. We can largely thank HECS for that.

Daniel Palmer is Business Spectator's North America correspondent @Danielbpalmer

IMPORTANT: This information has been prepared without taking into account your objectives, financial situation or needs and you should consider if the information is appropriate for you before making an investment decision. Unless otherwise specifically stated or disclosed (such as the InvestSMART Diversified Portfolios Product Disclosure Statement), neither InvestSMART Financial Services Pty Ltd nor any of its Related Companies make any recommendations as to the merits of any investment opportunity referred to in its emails or its related websites. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about the product. All indications of performance returns are historical and can not be relied upon as an indicator for future performance.